Today’s news that TNK-BP has appointed the former chancellor of Germany, Gerhard Schröder, to its board of directors is a striking illustration of just how far away Russia has fallen from the most basic standards of a functioning market.  What matters in this business environment is not efficiency nor competitive, commercial success, but rather proximity to power, whereby business survival depends on personal relationships with the political apparatus, and backroom handshakes of preferential status are necessary to overcome problems.  It is a process of creeping corporate acquiescence to the corruption of state officials, and the final resignation to the fact that Russia is not a rule of law state in which the law is dependable to protect one’s property.

TNK-BP’s motivation behind this decision is clear.  The Anglo-Russian joint venture, 50% held by the British and 50% held by the AAR consortium (Alfa Bank, Access Industries, and Renova, bringing the weight of the two powerful oligarchs Mikhail Fridman and Viktor Vekselberg), experienced an absolutely awful year in 2008 as the two sides underwent an epic struggle for control of the company.  The BP side had certain views on the strategic development of the company, seeking to reinvest dividends into maximizing production (which requires the hiring of expensive technical experts and secondees).  In a compelling letter to FT, Mikhail Fridman outlined the Russian perspective, which accused the British of treating TNK-BP as “a vehicle for adding reserves to shore up its own stock price” while preventing the venture from expansion beyond Russia.  There was no love lost over at BP, whose Chairman Peter Sutherland put it quite bluntly:  “This is just a return to the corporate raiding activities that were prevalent in Russia in the 1990s.”